Trade and tourists: How impoverished but nuclear-armed North Korea raises funds

Seoul: The closure of a factory park in North Korea jointly run by both Koreas has robbed the impoverished North of a rare source of legitimate hard currency. Seoul says it shut the Kaesong complex in response to the North's recent long-range rocket launch to keep its impoverished neighbour from using the money factories provided to fund its nuclear and missile programmes.

With that hit to Pyongyang's already shaky finances gone, at least for now, here's a look at the North's economy and the external sources of income it maintains despite a raft of heavy international sanctions over its nuclear and ballistic missiles programme.

Pyongyang's economy

Seoul and Washington want more stringent trade and financial sanctions to punish the North's nuclear and missile adventures, but some question whether sanctions will ever meaningfully influence one of the least trade-dependent economies on the planet.

And what of that economy? It is extremely difficult to read because it doesn't release official trade statistics and treasures its secrecy.

South Korea's central bank, however, provides some idea of what's happening, based on data it receives every year from other government agencies, related organisations and an investigation of research organisations.

The bank has been publishing estimates of North Korea's economy since 1991. In its latest report, it said it believes the North's economy grew by 1 percent in 2014 to 33.95 trillion South Korean won, or $28.5 billion, or about 2 percent of South Korea's economy.

The Bank of Korea said North Korea's combined imports and exports that year were about $9.9 billion, including $2.4 billion in trade with the South, which the Unification Ministry says was generated nearly entirely from the activities at Kaesong.

Trade with China

North Korean workers assemble jackets at a factory of a South Korean-owned company at the jointly-run Kaesong Industrial Park. AP

And then there's China, Pyongyang's last major ally, its diplomatic protector and by far its largest trading partner.

North Korea's main exports to China include coal, minerals, clothing and textile, and foodstuff, while its imports from China include petroleum gas, steel, machinery, cars and electronics products, according to South Korea's government-funded Korea Trade-Investment Promotion Agency.

Beijing, however, is unlikely to support harsh punishment over the nuclear test and rocket launch for fear of provoking a government collapse in Pyongyang and a potential stream of refugees across their border.

Transactions with China accounted for more than 74 percent of North Korea's trade in 2014, and more than 90 percent when excluding trade related to the Kaesong park, according to Statistics Korea, Seoul's official statistics agency, which analyzed the central bank data and information from trade organisations.

Kaesong Industrial Park

The South's Unification Ministry says the Kaesong park provided 616 billion won ($560 million) of cash to the North since its establishment in 2004, during an era of rapprochement between the rivals.

More than 120 South Korean companies employed about 54,000 North Koreans at Kaesong, paying each about $150 a month to manufacture products such as clothing, wristwatches, cosmetics products and electronics components.

The ministry hasn't provided a detailed explanation on why it suspects money generated from Kaesong was channeled to North Korea's nuclear weapons and missile projects.

Jeong Joon-Hee, the ministry's spokesman, said it was plausible that a sizeable amount of the money the South Korean companies paid for North Korean labour would have ended up in Pyongyang's state coffers because of the way the workers receive their wages. While the South Korean companies pay the North in US dollars, their North Korean employees receive wages in North Korean won based on an exchange rate dictated by the North's government.

Exporting workers

Outside experts say that North Korea since the mid-2000s has been increasing the number of workers sent for contract labour overseas in an attempt to bring in more hard currency.

South Korea's government-funded Korea Trade-Investment Promotion Agency, based on information collected from its global offices and reports from international organisations, estimates that there are about 60,000 to 100,000 North Koreans working in 40 different countries.

Marzuki Darusman, a UN special rapporteur on human rights in North Korea, said in a report in 2015 that more than 50,000 North Korean are working overseas and earning the country something between $1.2 billion and $2.3 billion annually in foreign currency.

North Koreans have been employed in a broad range of activities in foreign countries, including working at restaurants in China and Southeast Asia and construction sites in Russia, the Middle East and North Africa, according to the International Network for the Human Rights of North Korean Overseas Labor.

North Korean workers overseas often face harsh working conditions and abuse, said the UN report.

Luring tourists

North Korea has tried to strengthen tourism in recent years by setting up special tourism zones and developing scenic areas and recreational facilities.

North Korean officials have told The Associated Press that about 100,000 tourists came to the country in 2014, all but a few thousand of them from neighboring China. The growth in tourism has come despite the occasional arrest of foreign visitors, including, most recently, American university student Otto Warmbier, who was detained in January over an unspecified act that the North called "hostile."

Tours to the North's scenic Diamond Mountain by South Koreans were popular for about a decade until 2008, when they were halted after a North Korean guard fatally shot a South Korean woman.

The US State Department has long warned against travel to North Korea. After North's recent nuclear test, Washington has reportedly sought a ban on tourism and restrictions to keep North Korea's flagship airline, Air Koryo, from flying into and out of airports abroad.